Business: an organization that produces or sells goods or services in an effort to make profit.
Profit: what remains after business expenses are subtracted from its revenues. It is also the intention to
Deficit is when a business spends more than it gains
Factors of Production
There are 4 factors of production
1. Natural Resources: raw materials including land
2. Labor: Human resources, it is the mental and physical capabilities of people
3. Capital (includes equipment): financial and technological resources
4. Entrepreneurs: people with initiative who take opportunities and risks; allocates and organize
resources in the best possible order/way.
- Knowledge (debatable)
Markets: a mechanism for exchange between buyers and sellers for a particular good or service.
There are two types:
- Command or Planned Economies: Government control or own all of the factors of production,
therefore they make most or all decisions
- Market Economy: Individuals own or control factors of production, individuals make most or all
- Communist Economy: government controls 100% of economic decisions
- Socialist Economy: government controls the majority of the factors of production, so it makes
most of the economic decisions
- Capitalist Economy: individuals own all factors of productions, they make 100% of the economic
- Mixed Economy: individuals control the majority of factors of production, and make most
economic decisions. Ex = Canada, France, USA, UK
Canada’s majority of factors of productions are controlled by private individuals, most of the
decisions are made by individual. But the government intervenes and is involved in the economy,
through taxation and regulation; plus providing some services.
Privatization: Is the process by which government enterprises pass to be private owned companies.
1 Deregulation: reduction of the number of laws affecting business activity and in the powers of
government enforcement agencies.
HOW GOVERNMENTS INFLUENCES BUSINESS
- Government as a customer
- Government as competitor
- Government as a regulator
- Government as taxation agent
- Government as provider of incentives
- Governments as provider of essential services
DEMAND AND SUPPLY
The Laws of Demand and Supply
- Law of Demand: buyers will purchase more of a product as its price drops and less of a product
if price increases.
- Law of Supply: producers will offer more of a product for sale as its price rises and less as its
Demand and supply schedules are obtained from marketing research and other systematic studies
of the market.
Demand and Supply Curves
- A demand curve shows how many products will be demanded at different prices
- A supply curve show how many of the product will be supplied at different prices.
Market price or equilibrium price: the price at which the quantity of goods demanded and the quantity
of goods supplied are equal.
SURPLUS AND SHORTAGES
- Surplus: a situation in which the quantity supplied exceeds the quantity demanded.
- Shortage: the quantity demanded will be greater than the quantity supplied
DEGREE OF COMPETITION
- Perfect competition: lots of suppliers, all are small, more or less the same, and must sell at the
- Monopolistic Competition: lots of suppliers, most are small, most are more or less the same,
some that are big can differentiate themselves, most sell at the same price, big suppliers can
2 - Oligopoly: small number of suppliers, all are large, each tries to differentiate themselves,
industry is hard to enter and/or exit, and they follow or watch each other closely
- Monopoly: only one supplier, 100% of market share, can set whatever price they want
External environment: Is the outside of an organization’s boundaries that might affect it.
Economic environment: refers to the condition of the economic system in which an organization
THE BUSINESS CYCLE:
Business cycle: is the pattern of short-term ups and downs in an economy
Recession: a period in which aggregated output declines.
Depression: if a recession last for a prolonged period it is called depression
AGGREGATE VALUE AND STANDARD OF LIVING
Aggregate output: the total quantity of goods and services produced by an economic system during a
Standard of living: the total quantity and quality of goods and services that they can purchase with the
currency used in their economic system.
CROSS DOMESTIC PRODUCT (GDP)
Gross Domestic Product (GDP): total value of all goods and services produced within a given period by a
national economy through domestic factors of production.
Gross National Product (GNP): total value of all goods and services produced by a national economy
within a given period regardless of where the factors of production are located.
GDP per capita: is the GDP per person (total GDP / population)
Real GDP: is the adjusted GDP
Nominal GDP: is the non-adjusted GDP
Purchase power parity: principle that exchanges rates are set so that the prices of similar products in
different countries are about the same.
3 Productivity: a measure of economic growth that compares how much a system produces with the
resources needed to produce it.
Productivity = outputs / inputs
Higher Productivity is produced by:
- Better education
- Better trained labour
- More money == Better technology
- More and cheaper natural resources
Balance of Trade: is the economic value of all the products that a country exports minus the economic
value of its imported products.
- Positive balance of trade when there is more export than imports. Helps economic growth
- Negative balance of trade when there are more imports than exports. Inhibits economic growth
National Debt: amount of money that the government owes its creditors
Budget Deficit: when the government spent more money that it actually received
Stability: condition in an economic system in which the amount of money available and the quantity of
goods and services produced are growing at about the same rate.
Inflation: occurs when there are price widespread price increases throughout an economic system.
Consumer Price Index: measures the change in price of a “basket” of 600 different goods and services a
family might buy
Deflation: when the bank reduces interest rates in an attempt to increase consumer demand.
Unemployment: level of joblessness among people actively seeking work in an economic system
- Frictional Unemployment: people who are temporarily out of job while looking for a new job
- Seasonal Unemployment: people who are out of work because of the season nature of the jobs
- Cyclical Unemployment: people are out of work because of a downturn in the business cycle
- Structural Unemployment: people lack of skills needed to perform available jobs
MANAGING THE CANADIAN ECONOMY:
Fiscal Policies: policies by means of which governments collect and spend revenues.
Monetary Policies: policies by means of which the government controls the size of the nation’s money
Stabilization Policy: policy embracing both fiscal and monetary policies, whose goal is to smooth out
fluctuations in output and unemployment and to stabilize prices
- Highest interest rate, expensive to borrow, less consumption by consumers and producers.
- Lower interest rate, cheaper to borrow, more spending by both consumers and producers.
4 EMERGING CHALLENGES AND OPPORTUNITIES IN THE BUSINESS ENVIRONMENT:
Core Competency: skills and resources with which an organization competes best and creates the most
values for owners
Outsourcing: strategy of paying suppliers and distributors to perform certain business processes or to
provide needed materials or services
Small Businesses: an owned-managed business with less than 100 employees
- 98% of businesses are small businesses
New Venture/Firm: recently formed comm. organization that provides goods and/or services for sale
Entrepreneurship: process of identifying an opportunity in the marketplace and accessing the resources
needed to capitalize on it
Entrepreneurs: People who recognize and seize opportunities
Private Sector: part of the economy that is made up of companies and organizations that are not owned
or controlled by the government
- Ideas generation
o The idea creates or adds value for the customer
o The idea provides comparative advantage that can be sustained
o The idea is marketable and financially viable
o Sales Forecast: estimate of how much of a product or service will be purchased by
prospective customers over a specific period
o the idea has low exit cost
- Developing the opportunity
- Franchise: an arrangement in which a buyer(franchisee) purchases the right to set the product
or service of the seller(franchiser)
- Business Plan: a document that describes the entrepreneur’s proposed business venture;
explains why it is an opportunity, and outlines its marketing plans, its operational and financial
details, and its managers’ skills and abilities
- Collateral: assets that a borrower uses to secure a loan or other credit, and that are subject to
seizure by the lender if the loan isn’t repaid according to the specified repayment terms
- Common sources of debt financing includes:
5 o Financial institutions: banks, trust companies, co-operatives, etc. High risk situations.
o Suppliers: trade credit, agreement where the seller agrees to pay the creditor later
- common sources of equity financing:
o Personal Savings: owners put their savings to start up a business
o Love money: investments from friends, relatives and business associates
o Private investors: also called angels, a good example is dragons dens dragons
o Venture capitalists: pools of investment money
- Venture teams:
o The size and scope of the venture: How, why and is it really needed to hire more ppl
o Personal Competencies: what are the talents, skills, etc. that brings to the ventor
Starting a Small Business:
- Buying an existing business:
o Odds of success are better
o Proven ability to attract customers
o Has established relationships with suppliers, and other stakeholders
o Carries also the problems it has like poor reputation, location or it may be difficult to
determine an appropriate purchase price.
- Buying a franchise:
o Franchise Agreement: stipulates the duties and responsibilities of the franchisee and
o The advantages of franchising: franchisees and franchisers benefit of way of doing
o Factors that affect the decision of purchasing a franchise:
Franchise sales price
Expenses that will be incurred before the business opens
Operational expenses for the first six months
Personal financial need for the first six months
Success and Failure in Small Businesses:
Reasons for success:
- Hard work, drive and dedication
- Market demand for the product or service
- Managerial competence: understanding of how to manage a business
Reasons for failure:
- Managerial incompetence or inexperience
- Neglect: managers who do not put the time an effort in the business
- Weak control systems
- Insufficient capital
6 CHAPTER 4
Sole Proprietorship: a business owned and operated by one person
- Advantages: easy to form, no need to register your business, you get all the money.
- Disadvantages: unlimited liabilities, dissolved when the owner dies, hard to get loans.
o Unlimited Liability: personal liability for all debts of the business
Partnership: form of organization established when 2 or + persons agree to combine their financial,
managerial, and technical abilities for the purpose of operating a business for profit.
- General Partnership: type of partnership in which all partners are jointly liable for the
obligations of the business
- Limited Partnership: partnership with at least 1 general partner and 1 or more limited partners.
The limited partners cannot participate in the day-to-day management of the business or they
risk the loss of their limited liability status.
o General partners: partners who are actively involved in managing the firm and have
o Limited partners: partners who don’t participate actively in the business and whose
liability is limited to the amount they invested in the partnership
- Advantages of Partnership:
o Ability to grow by adding talent and money
o All partners must begin with an agreement
o Partnership lack of legal standing, so that the partners are taxed as individuals
- Disadvantages of Partnership:
o Unlimited liability
o When a problem happens to appear, both have to pay for one’s mistake
o Lack of continuity, when a partnership dies or pulls out, partnership dissolves legally
o Difficulty of transferring ownership
o Little or no guidance in resolving conflict between partners
Corporation: business that is a separate legal entity that is liable for its own debts and whose owners’
liability is limited to their investments.
- Shareholders: persons who own shares in a corporation
- Board of Directors: group of individuals elected by a firm’s shareholders and charged with
overseeing and taking legal responsibility for the corporations actions
- Inside directors: members of a corporation’s board of directors who are also full time
employees of the corporation
- Outside directors: members of a corporation’s board of directors who are not also employees of
- Chief Executive Officer: the person who is responsible for the firms overall performance
- Types of corporations
o Public Corporations: business who shares are widely and available for sale to the
o Private Corporations: business whose shares are held by a small group of individuals
and is not usually abailable for sale to the general public
7 Initial Public Offering(IPO): sale of shares in a company for the first time to the
general investing public
- Formation of the corporation
o Federal corporation under the Canada business Corporations Act
o Provincial incorporation under any of the provincial corporations acts
- Advantages of incorporation:
o Limited Liability: the liability of investors is limited to their personal investments in the
o Shares: a share of ownership in a corporation
- Disadvantages of incorporation: cost and regulations they have to abide by
Globalization: the integration of markets globally
Imports: products that are made or grown abroad and sold in Canada
Exports: products made or grown in Canada that are sold abroad
THE MAJOR WORLD MARKETPLACES: North America, Europe and Asia-Pacific
Per capita income: the average income per person of a country (pg68)
- High-Income countries: those with per capita income greater than $10,065.
- Upper-Middle-Income countries: per capita income between $3,255 and $10,065.
- Low Middle-Income countries: per capita income between $825 and $3255
- Low-Income counties: per capita income below $825
Balance of Trade: the difference in value between a country’s total exports and its total imports
Trade Surplus: when a country exports more than it imports
Trade Deficit: when a country imports more than it exports
Balance of Payment: difference between money flowing in to and out of a country as a result of trade
and other transactions. An unfavourable balance means that more money is flowing out than in.
Exchange rates: the ratio of one currency to another
Euro: a common currency shared among most of the members of the European Union, excluding
Sweden, Denmark and the UK
International Organizational Structures
Independent agents: a foreign individual or organization who agrees to represent an exporter’s interest
in foreign markets
8 Licensing Arrangements: an arrangement by an owner of a process or product to allow another business
to produce, distribute, or market it for a fee or royalty
Branch Office: A location that an exporting firm establishes in a foreign country in order to sell its
products more effectively
Strategic Alliance: an enterprise in which two or more persons or companies temporarily join forces to
undertake a particular projec